Before we try to understand how bitcoins and blockchains are related, we must be adept with the precepts of bitcoins. We must also understand what role blockchains play in the world of bitcoins.
If you say that bitcoin is a cryptocurrency, you are correct. It is a form of electronic cash which functions just as general currency units. BUT there is much more to dwell on bitcoins.
Bitcoin is basically a digital currency that was created in the year 2009. With a promise of lower transaction fees than traditional online payment mechanisms unlike government-issued currencies, bitcoin has emerged as a popular trend in the recent years. Bitcoins do not exist physically; rather, they are maintained as balances on a public ledger in the cloud, which are verified by a massive amount of computing power. Despite not being a legal tender, bitcoin is quite high on popularity and in due course of time it has stimulated the launch of other virtual currencies collectively referred to as Altcoins.
PS: According to the official Bitcoin Foundation, the word “Bitcoin” is capitalized in the context of referring to the entity or concept, whereas “bitcoin” is written in the lower case when referring to a quantity of the currency or as units.
NO. They are not. Bitcoins are simply online currencies or cryptocurrencies, while blockchain is the technology that is leveraged to manage bitcoins. Bitcoin was launched to bypass government currency controls and simplify online transactions by getting rid of third-party payment processing subsidiaries. Bitcoin transactions are stored and transferred using a distributed ledger on a peer-to-peer network that is open, public and anonymous. The technology that maintains the Bitcoin transaction ledger is Blockchain.
In simple terms, the Bitcoin blockchain is a ledger which is comprised of Bitcoin transaction records. This ledger is distributed across a peer-to-peer network and is without a central authority. Therefore, network participants must agree on the validity of transactions before they can be recorded. Known as consensus, this agreement is achieved through a process called bitcoin mining.
After an individual uses Bitcoins, bitcoin miners engage in sophisticated and resource-intensive computational equations to verify the legitimacy and authenticity of those transactions. Through the whole process, a Proof of Work that meets certain requisites is developed. A piece of data that is both costly and time-consuming to produce, Proof of Work can however be easily be verified by others. To be considered a valid transaction on the blockchain, an individual record must have a Proof of Work to prove that a consensus was achieved before it got added to the blockchain. By this design, transaction records cannot be tampered with or manipulated post addition to the blockchain.
The blockchain that supports Bitcoin was developed specifically for cryptocurrency. That is the main reason for which it took a while for people to realize that blockchain technology could also be adapted for use in other areas. The technology also had to be modified substantially to meet the rigorous standards that today’s businesses demand.
Three main characteristics distinguish the Bitcoin blockchain from a blockchain which is designed for a business. They are:
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With bitcoins, no individual or bank is maintaining our transaction ledger. The ledger is available to everyone, and transactions are linked to our Bitcoin address. This makes our transactions and money really secure as there is no centralized control. Additionally, unlike normal transactions where there is a need for us to punch in our personal details and credentials, the only thing we need to mention while transacting bitcoins is our Bitcoin wallet address. This ensures anonymity and safe online transactions.
Most importantly, when we make a Bitcoin transaction, our Bitcoin software signs the transaction with our private key. This cryptographic signature is the mathematical mechanism that allows someone to prove their ownership.
Secure, fascinating, and alluring, Bitcoins are the best form of online transactions that we can look up to in this world where piracy and hacks have become as rampant as human beings.Previous Next
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